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Sales Tax in India
Any goods sold or bought in India had a tax levied on it which was referred to as Sales Tax (until GST replaced it for most goods on 1 July 2017). It fell under the indirect tax category as the taxpayer did not pay the tax directly to the government but paid it to the collector who later submitted it to the government. This tax was usually charged at the time of purchase or exchange of the goods at a certain percentage of the goods value. It was levied by the union government and state government according to Sales tax rules. Today, the equivalent levy on most goods is GST; state-level sales tax/VAT continues only on petroleum products and alcoholic liquor for human consumption.
The benefits could be listed as below:
- Encourage savings and investment from a person.
- Helps in nation’s economic development.
- Paying tax returns to strengthen your credit history which is much needed while applying for any loans.
Types of Sales Tax
Sales taxes were of different types depending on the goods and service types:
- Manufacturers’ Sales Tax: levied on certain goods manufacturing.
- Wholesale Sales Tax: levied on individuals dealing with wholesale distribution/sale of manufactured goods.
- Retail Sales Tax: levied on retail sales of goods which were paid directly by the last customer.
- Use Tax: levied on any goods purchased without sales tax from vendors who did not fall under the tax jurisdiction.
- Value Added Tax or VAT: an additional tax levied on all goods sales by governments.
However, sales tax was divided into two major types of rules:
- Central Sales Tax: levied by the union government
- State Sales Tax: levied by the state governments
Central Sales Tax or CST
The central government maintained the taxation laws in this country and the rules were followed as mentioned under the Central Sales Tax Act, 1956. This act prescribed tax collection from various goods and it was payable in the state where those goods were sold. CST on inter-state sales ended for all goods subsumed by GST on 1 July 2017, replaced by IGST.
Objectives of CST were:
- To provide legislation for collecting tax from goods sold through interstate trade.
- To provide legislation for levying, collecting and distributing collected tax.
- To determine principles for selling and purchasing goods.
- To classify goods and their importance for selling and purchasing.
- To maintain inter-state trade disputes.
Selling Price
The amount payable for acquiring a product was called the sale price which included packing cost, insurance charges, incentives and sales tax paid by the dealer etc. No discount or installation cost or delivery cost could be included in it.
Inter-State Sales
Any goods that were transferred or moved between two states for sale were referred to as an inter-state sale after the sale completed in the destination state.
Various Forms
Dealers needed to give a declaration to the buyers in prescribed forms.
There were various forms issued by the Sales Tax authority which were defined for use for specific purposes:
- Form C: with this form, the purchasing dealer could get goods at concessional rates from the seller.
- Form D: issued to the purchaser of the goods.
- Form E1: the dealer initiating the inter-state movement needed to issue this form.
- Form E2: the subsequent seller issued it when goods moved between states.
- Form F: when the goods were sent to other states from one, this form was issued
- Form H: exporters issued this form for purchasing goods.
- Form I: dealers from Special Economic Zones needed to issue this form.
State Government Taxes
State governments could also levy taxes on certain goods to maintain their financial requirements. The tax rate could differ from goods to goods and in various states with VAT included into it, which was a great revenue generator for the states. This is why certain goods had a different price in different states. (State excise and VAT on alcoholic liquor, and VAT on petroleum products, continue even after GST.)
Sales Tax Exemptions
Certain exemptions were prescribed for certain goods by various states to avoid double taxation:
- Reselling of goods was exempted from taxes if the seller had a state resale certificate.
- A list of essential and local products was exempted from sales tax.
- Products sold to charities and schools were exempted from tax liabilities.
Sales Tax Calculation
Calculating sales tax was complicated; all one needed to know was the right formula.
Total Sales Tax = Cost of item x Sales tax rate
The essential points to remember while calculating sales tax were:
- It could vary from state to state and had to be paid according to the particular state and city.
- For multiple items, the tax was calculated after adding all of them.
- It was calculated in percentage.
Violation of Sales Tax Rules
There were many forms of tax violation and such acts could lead to a penalty for the taxpayer:
- Providing incorrect information in any of the forms.
- Not obtaining the CST act registration certificate and not following the CST act.
- Misappropriation of goods purchased at discounted rates.
- Falsely impersonating a dealer or projecting oneself as a dealer.
- Unregistered dealers collecting sales tax from consumers was a violation.
- Providing incorrect statements about purchased goods.
Get the detail process of Direct Tax in India Get Details
Central Board of Direct Taxes
The CBDT or Central Board of Direct Taxes controls the administration of taxes in India and has been declared as a statutory authority and functions under Central Board Revenue Act, 1963 and it works under the Department of Revenue.
The member structure of CBDT:
- Chairman
- Member (Revenue)
- Member (Income Tax)
- Member (Investigation)
- Member (Legislation and Computerization)
- Member (Personnel and Vigilance)
- Member (Audit and Judicial)
Function of CBDT:
It maintains all direct tax collection and related issues in India including the following:
- Works to frame direct tax policies
- Administrate direct tax laws along with the Income Tax Department.
- Process and investigate tax evasion complaints.
